Financing the Sustainable Development: 2nd National Workshop on Innovative Climate Finance Mechanisms for the Financial Institutions in Sri Lanka 7‐8 November 2017, Sri Lanka Experience and Challenges for Green Banking in Sri Lanka Nalin Karunatileka Vice President (Project Management & BCP) DFCC Bank, Sri Lanka 8 November 2017 Green Banking Experience in Sri Lanka The ‘Green Banking’ focus so far has been on ‘mitigation’ efforts ‐ • Essentially funding private sector Non‐Conventional Renewable Energy (NCRE) projects Grid‐connected projects from the mid 1990s: • Mini Hydro (1996) • Bio‐mass (2004) • Wind (2010) • Solar (2016) • Waste‐to‐Energy (loan approval s in place) Off‐grid Solar Homes Systems and community village hydro systems Grid Tied Solar – Domestic and Commercial Roof Top Solar installations Consumer financing of Hybrid/Electric vehicles; Financing of Green Buildings Credit Lines for NCRE Project Amount Funding (millions) Agency Energy Services Delivery (1997‐2002) Loan USD 19.7 WB (IDA) Grant USD 3.8 GEF Renewable Energy for Rural Economic Development Loan USD 115.0 WB (IDA) (2002‐2011) Grant USD 8.0 GEF Green Energy & SME Global Loan (2013‐2015) Loan EUR 90.0 EIB (RE Comp. 27.0) Environmentally Friendly Solutions Fund (E‐friends) Loan Yen 2,740 JICA (1998‐2004) & Revolving Fund 1 & 2 In addition, various funders have provided credit lines to specific banks. A new USD 50m credit line from ADB for ‘Roof‐top’ Solar is about to be launched Key benefits of a credit line : long term funds available in Sri Lankan Rupees where the Government of Sri Lanka (GOSL) assumes the exchange risk and the credit risk of the bank NCRE Projects funded by Credit Lines to Date ESD RERED SME & Total All NCRE Installed Green (including non‐ Energy credit line funded) As at July 2017 Grid Connected Projects ‐Hydro 15 (31 MW) 68 (164.5) 14 (22.6MW) 97 (218.1MW) 181 (353.7MW) ‐Wind 2 (19.8) 2(20MW) 4 (39.8 MW) 15(128.9MW) ‐Solar 1(10MW) 1 (10MW) 8(51.4) ‐Bio‐mass *1(1MW) 1(4MW) 2 (5MW) 9(24.1MW) Off‐Grid (Households Electrified) ‐ Solar Home 20,953 110,575 ‐ 131,528 Systems ‐Community 1,732 6,220 ‐ 7,952 Hydro & Bio‐ households; households; 175 mass 35 schemes schemes (350 kW) (1,770 kW) Source: World Bank Publications, Ceylon Electricity Board; *Note: The RERED funded bio‐mass project is no longer in operation Progress of NCRE Since 1996 Source: CEB Website Internal Bank Funding Recent Government Policy Measures for Private Ending of credit lines did not end bank Sector Involvement funding for Renewable Energy projects • Encourage private sector investment in grid connected Wind/Solar/Waste to Energy Power generation Projects are attractive to fund due to • Tenders for 60, 1 MW solar plants • Net Metering/Net Accounting/Net Plus • Cost based, technology specific fee‐in‐tariff ‐ cost of Schemes with attractive feed in tariffs funds taken into account in tariff computation • “Surya Bala Sangramaya” (Battle of Solar) • Standardized Power Purchase Agreements initiative for 1 million solar roof tops • No delays in CEBs payments • “Rivi Bala Saviya” interest subsidy scheme Many Commercial Banks are now • Differential duties for Electric/Hybrid vehicles comfortable with funding new technologies To be fully implemented: • Developing technical standards, Energy Banks wish to establish their ‘Green’ labelling, Electric Vehicle charging standards, credentials Green building codes • Licensing Service providers Consumer demand created by Government • Hiring of roof‐tops for Solar power Policy Initiatives generation Current Challenges • Awareness – Understanding of climate risks and the urgency for action at all levels – Attributes and risks of various technologies – Knowledge to design and promote Green Banking products to customers • High Cost of Investment (now reducing!) – Higher nominal cost for the utility/consumers (domestic & industrial)/Government – Affordability for mainstreaming • Lowering the cost of funds – Feed‐in‐tariffs to Auction Based Tariffs for grid scale power generation projects – To make climate initiatives attractive and affordable • Domestic long term debt financing from the capital market is expensive! – Long terms investors are few is Sri Lanka (only a few pension funds & insurance companies) and the demand for long term funding is high – Risks are high – history of volatile inflation and interest rates – Hedging mechanisms are not prevalent Current Challenges (cont’d) • External Sources of Climate Finance – Foreign Exchange risk is unacceptably high – only companies with forex revenues have capacity to borrow – Hedging cost is also high • Climate Change itself! – Recent draughts and floods have adversely effected mini‐hydro projects – DFCC had to reschedule some projects – first due to drought, then due to flood/landslide damage! • Insurance for floods/landslides/changed weather patterns – Local insurers are hesitant. – Re‐Insurance • Regulatory Requirements and Accounting Rules can discourage Climate Finance – BASEL 3 – IFRS 9 • Compliance – Cost of compliance – Capacity to monitor post implementation – Cost of monitoring compliance Overcoming Challenges High Cost of Mobilizing Domestic External Finance Awareness among Regulatory Investment Sources Sources bankers Requirements •Longer term credit to •Big commercial banks •Green Climate Fund •Awareness Training •Sustainable Finance spread cost have a large pool of •Multi‐lateral and bi‐ •Sustainable finance, Road Map by Central •Concessionary low cost CASA funds – lateral funding, Climate Finance in Bank of Sri Lanka funding thus the capacity for private sector funds IBSL curriculum, •Macro‐prudential rule •Interest Subsidies long term Green •JICA funding for LRT, Courses at “Centre for changes by regulator Financing •Co‐financing grants ADB funding for wind Banking Studies” • Mandatory reporting •Need to transition •Risk Mitigation farm, rail of climate change from ‘business as electrification (Govt projects – •Partial credit usual’ ‐ A nudge from Projects) guarantees the Regulator? •Credit lines for •Insurance •Ensure all Govt. private sector •Re‐insurance backed credit lines projects •Loan structuring – have Green •Issuance of Green building buffers safeguards/incentives Bonds •Exchange risk mitigation is vital for private sector investment Thank You for Your Attention! Nalin Karunatileka Vice President (Project Management & BCP) DFCC Bank PLC 73/5 Galle Road, Colombo 3 Sri Lanka Tel 94 11 244 2232 Fax 94 11 244 3076 Email: [email protected] www.dfcc.lk.